IFPI : Digital Music Report 2012

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Digital Music Report 2012
Expanding Choice. Going Global Digital Music Report 2012
Contents

Introduction 3 Focus on France 20
n Plácido Domingo, chairman, IFPI n Hadopi: “Positive impact for years to come”
n Frances Moore, chief executive, IFPI n The independent’s view: Innovation and
“meaningful sanctions”
Artist voices 5
Focus on the US 21
Digital Music: Expanding Choice. n ISP agreement and strong digital growth
Going Global 6
Focus on South Korea 22n Executive Summary
n Global digital growth rate accelerates n A continuing success
n The global top selling digital singles of 2011
Developing a legitimate business in China 23n Access or ownership? You choose
n Global expansion n Major record companies license Baidu
n Progress against piracy
n Intermediaries have a key role Protecting content online: Intermediaries
step up 24
The business models of digital music 10
n Search engines should link to legal music
n Downloads break through borders n Advertising: Cutting the funds to piracy
n Digital album demand alive and kicking n Payment providers act on illegal sites
n The rise of subscription n Hosting providers: A key partner
n Subscription reaches new consumers
n Bundling music – a route to the mass market Self-Help: Anti-piracy enforcement
n Internet radio continued to expand and education 26
n Music video meets strong consumer demand n Tackling the pre-release hackers
n Public education: a long term commitment
The art of digital marketing 14
n A Guide to Music, Film, TV and the Internet
Piracy: Improved cooperation from Digital Music Services Worldwide 28
online intermediaries 16
n A rigged market
n Books feel the impact
n ISPs: The needle is moving
n Progress in Europe
n New study assesses the effect of graduated response
n US and New Zealand: ISPs engage
n Moves to block “rogue websites”
n Evidence of site-blocking impact
2A digital world that rewards
artists and creators
By Plácido Domingo, chairman, IFPI
I accepted the invitation to become chairman of IFPI in 2011 because
I wanted to help improve the very challenging economic environment
which musicians – young and old – everywhere face in their
careers today.
We all know the music industry is in a period of dramatic change.
Much of this is cause for optimism and opportunity, as the Report that
follows suggests. Thanks to the amazing technology of the internet, the
audience for recorded music is fast-expanding across the world. Artists
who might not otherwise f nd a way to make their music available can
take advantage of the new ways to distribute music the internet offers.
At the same time policymakers better understand that the internet does
not make music “free”. There is greater acceptance of the need for
good and fair copyright laws to stop the infringement of artists’ and
producers’ rights. A widening circle of vital partners in the internet
world are cooperating in stopping piracy.
As a passionate supporter of the music industry, I welcome these
changes. However, it is fundamental that artists and creators, and
the producers that invest in them, should be rewarded for their work
in the digital environment just as in the physical world. Governments
and legislation have an essential role to play. I only have to look at my
native Spain – where piracy has had a terrible effect on everyone’s
royalties and the labels’ investment in artists – to see the extent of the
Plácido Domingo was appointed chairman of IFPI, the organisation that challenges we face.
represents the recording industry worldwide, in July 2011.
A world where copyright is properly respected brings income to artists
Domingo is a world-renowned, multi-faceted artist. Recognised as one and producers and investment in artists of all genres. It also delivers
of the f nest and most inf uential singing actors in the history of opera, jobs, growth and tax revenues. And, of course, it also brings an
he is also a conductor and a major force as an opera administrator in enormous amount of pleasure to billions of people. As its chairman,
his role as general director of the LA Opera. I am trying to help IFPI in its efforts to create an environment in which
the public can enjoy the benef ts from a successful digital music sector.
Plácido Domingo
3
Plácido Domingo. Photo by John MarshallDigital Music Report 2012
Digital Music in 2012:
Optimism Justifi ed. Complacency not Accepted
By Frances Moore, chief executive, IFPI
Looking through the pages of this latest South Korea, a pioneer of anti-piracy legislation which has required an
IFPI Digital Music Report, you see a effective role from ISPs in stopping infringement, is seeing continued
striking paradox: on one hand, there is the market health. New Zealand implemented a new graduated response
innovation and drive of a business that law in 2011 and surveys show it is already affecting consumer
has led the way for creative industries behaviour positively. In Europe, a series of successful court actions
in adapting to the digital age; on the required ISPs to block access to The Pirate Bay, prompting substantial
other hand, the extraordinarily diff cult reductions in users of that service.
environment in which these changes
On top of this, there is a “new frontier” in our work against piracy. are taking place.
Cooperation from a far wider circle of technology and business
This is the ninth report that we at IFPI have produced documenting partners, from advertisers to search engines, is now needed to deal
the evolution of the digital music sector worldwide. It has been with the problem. In 2011, we made signif cant progress with these
a challenging and often painful transition, but as we enter 2012, intermediaries. A ground-breaking three-way collaboration between
there are reasons for real optimism. The digital music business has payment providers, IFPI and the City of London Police has helped cut
now reached out to encompass the globe. The largest international funding to 62 illegal websites. That is a positive model that can be
legitimate digital music services are present today in no fewer than extended to new forms of piracy in the future.
58 countries – this number has more than doubled in the last
The role of search engines in relation to piracy will be a key priority in twelve months.
2012. Google and other search engines are an important access route
Consumer choice has been revolutionised, as new models for for those looking for unlicensed music on the internet. Our industry
consuming and accessing music are rolled out in new and existing has stepped up cooperation with search engines in the last year,
markets. The number of paying subscribers to services such as but a lot more cooperation is needed, such as prioritising legitimate
Spotify and Deezer has leapt in the last twelve months, from an sites in search results and helping prevent the funding of illegal sites
estimated eight to more than 13 million. At the same time, cloud- via advertising.
based services, such as iTunes Match, have become a reality in the
marketplace, helping drive the popularity of music downloading.
The music industry has grasped the
With a healthy 8 per cent increase in our digital revenues in 2011 – opportunities of the digital world in a the f rst time the annual growth rate has risen since records began
in 2004 – some might feel tempted to say that a troubled era for the way few, if any, other businesses can
music industry is coming to an end. Such complacency now, however, claim to have done.
would be a great mistake.
The truth is that record companies are building a successful digital
music business in spite of the environment in which they operate, Despite the challenges ahead, the optimism for digital music
not because of it. Figures in this report show that more than one in going into 2012 is well-justif ed. The music industry has grasped
four internet users globally regularly access unlicensed sites that the opportunities of the digital world in a way few, if any, other
contain copyrighted music. This is a startling statistic that captures businesses can claim to have done. Our digital revenues, at one-
the challenges we face in developing a sustainable legitimate digital third of industry income (and now more than 50 per cent in the US),
music sector. substantially surpass those of other creative industries, such as f lms,
books and newspapers.
We are undoubtedly making important progress in changing this
environment, dealing with both peer-to-peer (P2P) and other forms The music business is a dynamic contributor to the digital economy.
of digital piracy. In the US, music and f lm companies have agreed Yet it can be much more than that, delivering sustainable growth
with ISPs a new copyright alert system. In France, the Hadopi law has and jobs. This cannot be done through innovation and licensing
been successfully implemented and research shows it is accepted and alone. We need a fair legal environment, effective cooperation from
having an impact on consumer behaviour. intermediaries and a resolute commitment from governments to use
legislation to curb all forms of piracy. These are the priorities we will
be pushing for in 2012.
4
Frances Moore. Photo by Philippe Molitor“The digital age has brought about a way
of consuming music and connecting with Artist voices
your fan base that is unprecedented.
Partnering and working closely with digital
platforms allows us ways and means
“The creation and recording of a song of connecting with our fan base which
is the result of the work and talent of in turn creates greater exposure and
many: composers, musicians, arrangers, generates sales.”
engineers, assistants, producers. Each day
Professor Greenthere are more and better digital services to
help us enjoy the wonderful music created
throughout the world. To consume music
legally protects and respects the work of
each and every one of the people involved “I love the way music turns all these
in its creation and recording.” techie devices like PCs, mobile phones mobile phones
Shakira and iPand iPads into personalised juke boxes ads into personalised juke boxes
and I love how the internet lets me
connect with fans wherever they are in
the world.”
Natasha Bedingfi eld
“As a lover of music, an admirer of almost every
genre of music, a fan of creativity, it’s such a
blessing to see the recent growth of people
supporting this art we call music. It’s touching to “There has been tremendous growth
know more and more people value supporting with new digital channels and
the music industry with integrity.” streaming services. These new business
partnerships have the potential to help Van Ness Wu
turn around our business. We must
create an awareness with the public
to realise the tremendous damage that
has been done to our industry, artists
& consumers. We must fi ght to ensure
that the next generation of artists can
survive & fl ourish into the 21st century.”
Lee Ritenour, guitarist/artist
“Music is available to everyone “It’s fantastic that fans can listen to
at the touch of a button. Please all the music they want for a good
try and only use those services value-for-money price. This is the
that actually pay the artists, future and I am so happy that my
songwriters and producers, music can be listened to in France
rather than those that don’t.” but also across the world thanks to
those new music services.”
Queen
Tal
“As artists who spend “Using many of the new music
much time on the services allows us all to be able
road we applaud the to access a treasure trove of
possibilities available music; new, old, forgotten or
today of having legal even undiscovered. It gives the
and fast access to so listener the power to express
many kinds of new, themselves and explore or
inspiring music.” simply fi nd old favourites.”
Frida Gold MiMi
5Digital Music Report 2012
Digital Music: Expanding Choice. Going Global
Executive summary
The digital music sector is pushing the limits of consumer choice, c % oF recorD comP From Digit
extending its business models and reaching out to consumers across
china 71
the globe. Digital channels have overtaken physical formats to become
the dominant revenue stream in the world’s largest market, the US. south k orea 53
And the digital music market is poised to further expand its reach
usa 52internationally in 2012.
Despite the huge challenges outlined elsewhere in this report, there is Source: IFPI estimates, 2011.
a mood of optimism in digital music at the start of 2012. Download
services are seeing continued strong consumer demand and are We have really only scratched the surface of
expanding their customer base, particularly in previously untapped “digital music in the last decade – now we are developing markets. Meanwhile, a fast-growing number of consumers
are using subscription services and other models. “There’s a race starting the real mining, and on a global scale.”
among the services to go global and plant the f ag in new territories,”
Rob Wells, president, global digital business, says Stephen Bryan, executive vice president, digital strategy
and business development, Warner Music Group. “We’re seeing Universal Music Group.
services that are generating revenues and growth. There is high
engagement with these services. Consumers love them and spend
hours using them.”
42%
Global digital growth rate accelerates
32%
Digital music revenues to record companies grew by 8 per cent
prOpOrtiOn OF industries’ globally in 2011 to an estimated US$5.2 billion. This compares to
gLObAL reVenues cOMing growth of 5 per cent in 2010 and represents the f rst time
FrOM digitAL sALes (2011)the year-on-year growth rate has increased
since IFPI started measuring digital
revenues in 2004. Digital channels
now account for an estimated 32 per
cent of record company revenues 5%
4%
globally, up from 29 per cent in 2010. 1%
Some markets now see more than
half of their revenues derive from
Games Music Newspapers Books Film
digital channels, including the US
(52%), South Korea (53%) and China Sources: PWC Global Entertainment & Media Outlook and IFPI. Notes: games
(71%). IFPI estimates that 3.6 billion includes players’ purchases of accessories and additional game content as well as
downloads were purchased globally subscriptions. Music share is based on trade revenues. Newspapers include digital
in 2011, an increase of 17 per advertising and subscriptions. Books excludes audio books. Film excludes online sales
cent (combining singles and and rentals of physical discs.
album downloads).
At a time when other creative
industries, in particular There’s a race among the services to go
f lm, newspapers and book “global and plant the fl ag in new territories.
publishing, are only now
We’re seeing services that are generating rapidly shifting to online
and mobile channels, the revenues and growth.”
music industry’s level of
digital penetration still Stephen Bryan, executive vice president,
dwarfs that of all other digital strategy and business development,
comparable sectors,
Warner Music Group.except games.
6
y
sources al revenues any ountrThe global top selling digital singles of 2011
The top selling single of 2011 was Bruno Mars’ Just The Way You Are, which sold more than 12.5 million copies. The combined sales of the top
ten digital singles grew by 11 per cent in 2011.
a t s (m)
bruno m ars Just t he w y ou a re 12.5
bruno m ars grenaDe 10.2
LMFAO Party r ock a nthem 9.7
JenniFer LOpez on t he Floor 8.4
AdeLe rOLLing in the d eep 8.2
LA g AgA born t his w 8.2
pitbuLL Ft . ne-y O, AFrOJAck & n Ayer give m e e verything 8.2
bLAck e yed p eAs the t ime (Dirty b it) 7.3
moves l ike Jagger 7.0MArOOn 5
brunO MArs the l azy s ong 6.5
Source: IFPI, 12 months to November 2011. Sales are rounded. Combines all versions of the same song.
Access or ownership? You choose
Certain fundamental factors underpin this growth. First is the continued Also driving growth is the global surge in consumer demand for
widening of consumer choice. Digital music is now broadly segmented smartphones and tablets. These, along with steadily growing broadband
into two main consumption models - “ownership” and “access”. penetration, are a major factor in the increased uptake of both download
Both took big strides in 2011. Subscription services expanded and and subscription services. “The technology infrastructure is being put
linked with new partners to reach new audiences – most notably in place in a way that we have never seen before and that is one major
integrating with Facebook and bundling their services with ISP offerings. reason why we feel positive about digital music going into 2012,” says
Meanwhile, developments in cloud technology are transforming the way Edgar Berger, President and CEO, International, Sony Music Entertainment.
fans manage and store their music.
Record companies are working with business partners to create products
Music companies believe both models – access and ownership - that can offer a better user experience than unauthorised services. Mark
have enormous growth potential. Rob Wells, president, global digital Piibe, executive vice president, global business development, EMI Music,
business, Universal Music Group, says: “The fact that these two models says: “We know that some people will migrate from piracy and that others
of consumption can co-exist speaks volumes about the future. In fact, will not, but we want alternatives to be there. We think the presence of
we have really only scratched the surface of digital music in the last access services can expand the whole market.”
decade - now we are starting the real mining, and on a global scale.”
We think the presence of access services can expand the whole market.”“Mark Piibe, executive vice president, global business development, EMI Music.
D De
2009 2010 2011
t De r (us$) 4.6 billion 4.8 billion 5.2 billion
g 10% 5% 8%
Source: IFPI. 2011 fgures are estimates. 7
rowth
evenues ra
year by revenues tra music igital
ay dy
ay
ales itle rtistDigital Music Report 2012
At the start of 2011, the largest international digital services were present in 23 countries. One year later they are present in 58 countries.
Global expansion
In China, a market currently throttled by piracy, a landmark partnership Digital music retailers are fast spreading their reach globally. At the
was announced in June 2011 between three major record companies start of 2011, the largest international digital services were present
– Sony, Universal and Warner - and internet search giant Baidu. in 23 countries. One year later they are present in 58 countries.
Baidu, which previously had a licensing agreement with EMI, said it
In 2011, iTunes opened for business in 28 additional markets, now would close its infringing “deep links” service and establish a new
reaching more than 50 countries worldwide, including all members of authorised digital music offering, Ting, as part of the new agreement.
the European Union. Download service 7digital announced in October
2011 that it was launching new stores in Australia, New Zealand,
Malaysia and Singapore. This expansion means 7digital is now
available in 37 countries worldwide. Subscription services Spotify,
WiMP and Deezer are also expanding fast across national
borders. Spotify launched in the US and four European
markets and now reaches 12 countries. The US also
saw the launch of Muve Music in 2011. Deezer opened
its service in the UK in partnership with Orange, and
plans to continue to expand globally in 2012.
Latin America
In Latin America, iTunes opened for business in 16
countries in December 2011, following its successful
establishment in Mexico in 2009.
US-based subscription service Rdio launched in Brazil in partnership
with local mobile operator Oi. The Blackberry BBM music service
became available in Mexico and mobile operator America Movil/
Carso’s Ideas Musik launched in Mexico and Brazil. Other services,
including Google Music, are expected to reach Latin America in 2012.
Record companies have also formed innovative partnerships in the
region. Universal Music struck a deal with Peugeot in Brazil, that
The digital music market enabled the car manufacturer to offer unlimited music downloads for a
internationally remains year to consumers who bought a Peugeot 207 Magnetico car. It also
extraordinarily diverse. joined with computer manufacturer HP to offer unlimited tethered
“There isn’t one single road map downloads for a year and 120 DRM-free downloads to buyers of
of development for all our markets, several laptop models.
and every territory is unique,”
Afo Verde, president, Latin Region, Sony Music, says: “Broadband says Wells of Universal. “The
penetration in Latin America continues to grow and the region has way consumers interact with
become the number two cell phone market in the world, presenting a music varies enormously by market.
great opportunity to expand the digital music business. Subscription Every country has different economic
services are beginning to take root and we anticipate these will conditions, and different levels of
perform well, while download services will benef t from the rollout of broadband and device penetration
cloud technology.” and digital development.”
Asia Record companies are now
In Asia, South Korea remains the most successful digital music market, increasingly focused on new
with an estimated three million music subscribers. The most popular developing markets where digital infrastructure
service is MelOn, followed by MNET. Taiwan has the recently-launched is fast-evolving and there is exciting growth potential, provided digital
Omusic, an ISP bundled service. KKBOX, a major service in Asia, piracy can be effectively tackled. India, for example, has more than
is present in Hong Kong and Taiwan, offering streaming and 40 million smartphone users and 14 million broadband connected
download services. households (FutureSource Consulting Ltd).
8Progress against piracy
Despite the big steps forward of 2011, digital piracy remains a critical “You cannot play down the signif cance of piracy,” says Wells for
barrier to growth and investment by record companies. More than a Universal. “Spain, which should be the powerhouse of repertoire for
quarter of internet users globally (28 per cent) access unauthorised Latin America and the US Latin market, is effectively a dead market.
services on a monthly basis, according to IFPI/Nielsen. Yet in South Korea, where we have new anti-piracy laws, the market is
surging and now spreading its repertoire far beyond its own borders.”
Digital piracy broadly divides between peer-to-peer and non peer-to-
peer channels. Cooperation from a range of online intermediaries There is important progress on piracy. France has successfully
is needed in response. IFPI advocates an inclusive combination of implemented its “Hadopi” law, introducing education and warning
graduated response, site blocking and other measures. measures and the threat of sanctions to help migrate users to legal
sites. Research shows this is helping change consumer behaviour,
while the number of peer-to-peer (P2P) f le-sharers fell by 26
per cent within the space of a year (IFPI/Nielsen).
“Hadopi is our chance to revive
French digital music in France,”
says Yves Riesel, founder of indie label
Abeille and specialised digital platform Qobuz.
“It’s not the only solution, of course, but along with
the efforts of platforms and record producers it has given
us a chance to reverse the crisis of the last few years.”
Similar positive indications come from South Korea, while New
Zealand introduced graduated response legislation in 2011 and
in the US a landmark Memorandum of Understanding set out a
new programme of graduated response cooperation that will be
implemented by most major ISPs in 2012. Meanwhile, draft legislation
targeting “rogue” sites is being debated in the US. Evidence of the
impact of site-blocking comes from jurisdictions in Europe.
Intermediaries have a key role
The f ght against piracy is pushing at new frontiers too.
Other intermediaries, ranging from search engines and
advertisers, are increasingly getting involved. A partnership
between record companies, credit card companies
and law enforcement in the UK in 2011 typif es
the widening circle of engagement of these third
party “intermediaries.”
Search engines are a major channel for consumers
to access music. However, many of the top
results provided by search engines are linked to The technology infrhnology infrastructurastructure is being put
unauthorised content. Advertisers can also help “in place in a way that we have never seen
restrict the funding of illegal sites. Important steps forward were taken
before and that is one largest reason whyy in these areas in 2011, but more cooperation will be needed.
we feel positive about digital music going
The music industry commits considerable resources to anti-piracy
into 2012.” actions and public education campaigns. These are part of an industry
digital music strategy that is comprehensive and multi-faceted,
Edgar Berger, president and CEO, International, combining legal offerings, education and enforcement of rights.
Sony Music Entertainment. In 2011, IFPI was able to secure the removal of more than 15
million infringing links, a 115 per cent increase on 2010.
9Digital Music Report 2012
The business models of digital music
Downloads break through borders Digital album demand alive and kicking
Ten years after the frst online stores emerged in the US and Europe, Digital was once mistakenly feared to be the killer of the album.
the music download sector continues to expand internationally and However, this has proved far from the case. Digital album volume
improve its offer to consumers. Download stores account for a sales have grown steadily in recent years, with US and UK digital
large proportion of digital revenues and account for most of the 500 album sales in 2011 up by 19 and 27 per cent respectively.
legitimate services worldwide, offering libraries of up to 20 million (Soundscan and Offcial Charts Company). In the US and the UK,
tracks. Many major markets are seeing healthy increases in single digital albums already account for 31 per cent and 24 per cent
track download sales, including the US, up 10 per cent (Nielsen respectively of all albums sales by volume. Consumer demand for an
SoundScan); the UK, up 8 per cent (Offcial Charts Company/BPI) in artist’s body of work remains strong in the digital world especially as
2011; and France up 23 per cent (GfK). Consumer demand for iTunes, price competition is often ferce and storage on computers and devices
the market leader, is growing healthily. is less of an issue.
Streaming from the “cloud” turned to market reality in 2011, with Several factors explain the strength of demand for digital albums:
new systems that enhance the way consumers manage and store strong marketing campaigns, premium offerings that provide additional
their music. Leading the way, Apple launched its iTunes Match content and consumer habits. Premium albums often outsell their
service in November 2011, offering the opportunity to draw more lower priced equivalents in the frst few weeks of release, suggesting
users into iTunes and drive purchasing. iTunes Match enables users many music fans appreciate the extra value offered by these products.
to access their music libraries across the full range of devices they
own for a fee of US$25 a year. The service, licensed by international The rise of subscription
record companies, effectively upgrades a user’s music collection and
Music subscription is transforming the way people experience and pay dispenses with the need for them to physically transfer the music
for tracks and albums. It is also a fast-expanding business model. fles they have bought across the full range of their families’ devices.
The number of consumers subscribing to music services globally is iTunes Match will be available in the new markets worldwide that
estimated to have increased by nearly 65 per cent in 2011, reaching iTunes is entering.
more than 13 million, compared to an estimated 8.2 million the
New major players are following. Google launched a new music previous year. This supplements the tens of millions of consumers
service in the US, Google Music, in November 2011 for the Android who already use download services. “Subscribing to music used to
platform. Consumers can purchase individual songs or albums which be quite an abstract concept – but now it has become a practical
are then delivered to the cloud from where they can be streamed to concept. The mass market understands how it works and consumers
multiple devices. see the huge benefts,” says Edgar Berger of Sony Music.
Subscription has caught on exceptionally well in some markets,
Digital album volume sales growth in 2011 particularly in Scandinavia. In Sweden, for example, subscription
us +19% accounted for 84 per cent of digital revenues in the frst 11 months
of 2011, boosted by its national champion Spotify. Other markets uk +27%
saw sharp growth in subscription revenues, including France which
France +71% saw an increase of more than 90 per cent in the frst 11 months
global (est) +24% of 2011 (SNEP).
Source: Nielsen SoundScan, Offcial Charts Company/BPI, GfK and IFPI estimate.
There are around 500 legitimate music services worldwide offering up to
20 million tracks.
10